Common Sense: “Even if you find an awesome investment, spread your risk by picking a few other investments, as well. Rental properties are awesome, but even if you could make 20 percent cap rates, you should still keep a solid chunk of money in stock market index funds.”

Retort: “But I put 150 percent of my savings in gold in the year 2007 and it totally worked for me. Put every dime in gold! Nothing else! Why bother diversifying when you get the best returns in this arena?!”

Common Sense: “Hold on, you invested 150 percent of your savings?”

Retort: “Yeah, I can take a cash advance from my credit card at 14.9 percent and invest it for 170 percent gold returns! I’d be stupid NOT to!”

Common Sense: “Uh, don’t you think that’s a bit risky?”

Retort:“Hey scardey-cat, if you’re so terrified of risk, why don’t you sew your money into a mattress and leave REAL investing for us tough guys?”

Uh-huh. Right.

Tip: When your opponent has to justify their investing strategy with ad hominem attacks, they’re grasping for straws.

Alright, that was an easy example. Afford Anything readers are an intelligent group. I don’t need to explain this example. You can see why it’s an insane argument.

But let’s look at a subtler example of the “it worked for me” phenomenon. Let’s check out an example in which the counter is uncommon sense.

“But I Sold my Home for $20,000 More Than I Paid!”

UnCommon Sense: “Don’t tie up a huge chunk of your net worth in your home. Your home is NOT an income-producing asset. It won’t stick cash in your pocket each month.

“Your money should make money. So live in a cheap home while you deploy your cash into rental properties, stock index funds or other income-producing investments. Reinvest. Lather, rinse, repeat.

“Better yet, buy a small apartment building (like a duplex, triplex, 4-plex) as your first home. Live in one unit and rent out the others. If your neighborhood doesn’t have multi-units, live with roommates until you either have a baby or your mortgage is paid off.”

Retort:“But I sold my home for $20,000 more than I paid for it! So my house IS an investment! It worked for me!”

This is precisely the type of argument you’ll hear from someone who hasn’t crunched the numbers. The people who say it often conflate gross gains with net gains.

The average person doesn’t make very strong net gains on their home value, after adjusting for insurance, taxes, loan interest, repairs, maintenance, Realtor commissions and closing costs. If they’re lucky, most of their net gains can be explained as “inflation plus 2 percent.”

Most people would be better off living in tight quarters and putting the excess money into stocks.

Are there exceptions? Sure. Just ask the people who bought houses in Southern California in the 1970s. But this is the tail end of the bell curve. People have also made millions winning the lottery.

Furthermore, most of the people who happened to buy in 1970′s Southern California shot themselves in the foot by “trading up” continually until the market burst. Many people thought they were different, that they were the exception to the rule, but then they became scared that they’d be “priced out in five years.” So they bought a big home, then lost all their gains.

The best antidote to getting “priced out in five years” isn’t to pay an overinflated price today. It’s to create more wealth. Build your net worth at a rate that’s faster than housing growth. It’s not that tough.

Let’s try another example.

College is Good, Grad School is Better

UnCommon Sense: “You’re not a zombie. So don’t blindly repeat the mantra that college is good and graduate school is better.

“If you want to be a neurologist, awesome. Take out a six-figure student loan to go to medical school, because you’ll have a rare, high-demand skill that will command you a $225,000+ income.

“But if you want to be a social worker earning $30,000 a year with a master’s degree, think twice before burying yourself with debt.”

Retort: “But I did it and it wasn’t so bad! My student loan payments are only $180 a month. That’s nothing. That’s less than my car payment! And I think the government will forgive my loan in 20 years, anyway.

Plus, I got this job that pays $42,000 a year, and there’s a chance I could get enough in bonuses to make as much as $50,000. There’s no way I could have gotten that without my master’s degree.”

Ouch. This is one of the most common “it worked for me” arguments that I hear. And what’s befuddling is that the underlying message is that it really didn’t work.

$180 per month for 20 years is $43,200. That’s a decent chunk of cash, but it’s not horrifying. People have lost more by buying a house at the wrong price.

What’s worse is the missed opportunity. $180 invested monthly over 20 years is $106,730. That’s a horrifying amount.

But that’s still not the worst part. The real sad news comes from other missed opportunities. Want to start your own business after a few years? Good luck! The rest of us can move into grandma’s basement, mow lawns on the weekends to pay for groceries, and spend the rest of the week building our own graphic design enterprise. Your extra $180 monthly loan payment means you’ll need to mow many more lawns.

“That’s true of a mortgage, too.”

Yes, but you can sell a house.

That’s not the only hang up. You’ll be far less inclined to change careers if you decide your current path isn’t fulfilling. What would you do – go back for a second master’s degree in a different field, racking up even more debt?

Everyone believes that their diet is the best, because, well, it worked for them. But you don’t know how much bioindividuality influenced their outcomes.

That’s the same with financial growth concepts too. Investing (in stocks, gold, commodities, whatever) at a particular time in history might yield better results than someone who started a mere year later. Living and working in a specific area might be better for someone buying rental properties–but buying a similar property just 2 counties over might be a disaster.

We all have to accept that when we take advice, it is always a mirror of what the other person did, how they did it, when they did it, what information they had, their personality type, their life experience up to that point, etc.

What worked for someone else CAN work for you, but it’s almost always better to blaze your own path

Very timely post for me, as I just decided to quit grad school this weekend! When I decided to start the program it made sense: An MSA would greatly increase my earning potential. But, after 4 years and several “life interruptions” I was just now completing the prerequisite courses, and looking at 2 more years and $20,000 to finish. With being in my mid-thirties, and thinking about starting a family in the future, it just didn’t make sense any more. It would be years before I could really put my degree to use. Better to start saving now, and look at other ways to increase my income!

@Ms. W — I think quitting grad school is a fantastic idea in your situation. If you are contemplating possibly being a stay-at-home parent, or working reduced hours — or if you at least want the OPTION to do so — then there’s no reason to pile yourself with added expenses immediately beforehand. A strong cash cushion can yield you a LOT of options.

Your examples are spo-on. I’ve tried to discourage sooooo many friends from grad school – even in a biomedical field, you probably won’t make more than 40k or 45k a year until you get your own lab/teaching job. :S

Huge fan of your site now. I think passion is what makes the “but it worked for me” possible. For example I am passionate about maximizing credit card sign up bonuses. For those that are not good with cards, its a “but it worked for me” for me. Collected 6,000$ in bonus income over the last 14 months for applying for 15 cards and keeping them paid off. My fiancé is not passionate enough to do it too though so she gives up the opportunity. Another example is someone who drives an old car can maximize it and spend less and invest the rest as has been written on this sight. This might however be a “but it worked for me” because they are passionate to keep it cheap with good maintenance and frugal repairs. Not everyone has the passion to do so. I have found however leasing a zero down vw and taking that money not spent up front on a new car and investing at 13% returns actually yields a net zero cash cost over 4 years The investment pays for the payment. (of course the cost is the risk of the investment) . But it worked for me as I enjoy investing and am passionate about it. Passion is the key to “but it worked for me” Again love the site and am totally inspired!

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